Dig into CAML for income

After a torrid 2019, and before the coronavirus outbreak, enthusiasm for copper had started to pick up. While more copper is expected to be mined this year than last, supply is tightening due to low stockpiles in China. Meanwhile, analysts had become more optimistic about demand based on progress with US/China trade negotiations and concerted monetary easing in major world economies.

Importantly for investors in copper miners at a time of heightened uncertainty, Central Asia Metals should be able to keep paying out dividends and chipping away at the debt it amassed when it bought the Sasa mine for $403m (£310m) in 2017. Peel Hunt expects the $76m net debt as of 31 December to turn into $9m of net cash by the end of 2021, with the dividend payout maintained near the 2018 level. 

In 2019, Central Asia Metals produced 13,771 tonnes of copper at the Kounrad tailings operation, a 2 per cent drop on 2018, while zinc and lead production at the Sasa mine was flat on the year before. Cash cost are forecast to be stable, with copper costs predicted by Peel Hunt to come in at 53¢ per pound (lb), or $1,168 a tonne.

Fellow quality London copper producer Atalaya Mining (ATYM) had a cash cost of $1.81/lb in the first half of 2019, and on a much larger scale Antofagasta (ANTO) had a cash cost (net of byproducts) of $1.21/lb in the same period. From Central Asia Metals’ low cost base, any uptick in prices goes a long way, which could become a reality if the coronavirus threat can be contained. 

On the zinc and lead front, which could also benefit from better industrial demand in the short term, Central Asia Metals has this month outlined a new plan for the Sasa mine. This would change the mining technique in order to access higher production from higher grades while improving worker safety. Peel Hunt reckons this could add $10m a year in free cash flow – equivalent to about 4p per share – which would further support the attractive dividend. 

The company is also trying to identify a new mine at the right price, even detailing these efforts in its half- and full-year results. In the first half of 2019, management visited two sites and signed six non-disclosure agreements, but it is not currently in advanced talks with any sellers.